Tesla Motors has been making headlines for the past several days because of the legislative actions that are being taken against it in states like New Jersey. The incumbent automotive industry is shaking and scrambling to fight Tesla in every way that it can, save for straightforward innovation. Why? Because Tesla is going after the automotive industry on all fronts: production, distribution, and maintenance.
Last week, the New Jersey legislature enacted measures to prevent Tesla from opening its retail centers in the state. Administrators are taking the position that the law in New Jersey requires Tesla to use the dealership model for distribution. Tesla does not use dealerships. Tesla uses a system that allows the buyer to order directly from the factory. The model is old, outdated and results in higher prices for buyers.
Elon Musk, founder and CEO of Tesla, penned a blog post that expressed his reservations about New Jersey’s actions but also addressed inherent conflicts of interest that the current structure creates for introducing new and successful car companies. His first point is that franchise dealerships have a structural disincentive from selling electric cars because customers are more likely to stick with technology they know. But then Musk goes on to target another conflict of interest that deserves more attention; service.
“An even bigger conflict of interest with auto dealers is that they make most of their profit from service, but electric cars require much less service than gasoline cars. There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car. …
Going a step further, I have made it a principle within Tesla that we should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks. Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me on several occasions when I drove gasoline cars. I resolved that we would endeavor never to to do such a thing at Tesla, …”
Musk and his company, Tesla, are targeting the current auto monopolies’ profit centers. The fault lies not in Tesla’s aggressive expansion or intelligent design. Instead, the fault should be placed on the existing lobbies and corporations that have built their business on continuously returning less value to the consumer for higher prices.
In the words of Musk, “The larger car companies are just trapped in their own history.”